China's Faltering Recovery?

The export and manufacturing surge that had helped offset consumer weakness is fading at the same time as the housing market is starting to roll over

On the surface, China has weathered the economic impact of the coronavirus pandemic much better than most of the rest of the world. Gross domestic product grew more than 2% in 2020, and data released earlier this week show that growth continued to be reasonably robust in the first 10 months of 2021.

But things look worse under the hood. The pace of growth is slowing even as consumer spending remains far below the pre-pandemic trend. Export volumes—which had been powering the recovery ever since last spring—are dropping in inflation-adjusted terms. Meanwhile, the housing market is starting to roll over in response to tightening government restrictions.

The question is whether China’s policymakers will tolerate these outcomes as part of the broader rebalancing agenda, or whether the state will intervene through some combination of credit easing and more aggressive currency intervention.